Dow Jones Industrial Averages slumped by another 1.57% last Friday. Common Euro bond, which are generally treated as one of the very few methods to rescue European countries, was supported by neither EU president Van Rompuy nor strong countries like Germany. The debt problems in Europe were yet to be solved, or at least eased.
Among all these news, perhaps US's QE3.0 would be the only piece of good news to the stock markets. Though there are no official announcements about it, many experts are expecting it. Given the very slight influence by QE1.0 and QE2.0, the third one is going to play the role as delaying everything. The basic illness is not cured, QE is just a way to let people forget pain.
Anyway, let's see stuff through technical analysis.
Daily chart of Hang Seng Index (HSI):
Last week, I expected that the index would have been resisted at 20,900; in fact, HSI could not even surge above 20,500.
Dropping below the orange line, Hang Seng Index will face resistance at 19,700, but this would be a relatively weak one.
Strong levels are found at 18,000 and 20,900 (again). Though the range is pretty large, if the index breaks either one, the trend could be well confirmed.
MACD and its EMA touches each other again. Perhaps a zig-saw shape will be formed and that the cross last week was a false bullish cross.
Weekly chart of HSI:
It sounds unrealistic saying that the trading range is 18,000-20,900 on daily chart, isn't it? Weekly chart does give a better picture on what will happen next.
The red down-trend and green up-trend lines are exactly the same as that on daily chart, which are giving quite meaningless information.
The more critical indicator is again the Andrew's Pitchfork. This fork has done extremely well in helping us predict the movement of HSI, including the top at 22,800 and the low at 18,800 in past few weeks.
Therefore, by taking reference on the middle and lower line, we can get the narrowed trading range of 18,750-20,600.
In fact, 18,800 is also the 32.8%-fibonacci retracement level using the high in late 2007 and the low in late 2008. Together with the pitchfork, this level is definitely a very strong one and that the index could hardly break it (of course unless there is extremely breaking news).
For the upside, middle line would be resisting the index. This gives better explanation why HSI could not go beyond 20,500 last week. So this week we have to be aware of 20,600.
Let me talk more about the bigger picture which should not be showing up this week. The green line is the last support so far, if the index breaks down, next support will be found at 15,700. So if we confirm the breakdown at 18,000, we can short futures or long put for that 2,000 something points.
Good luck.
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